In the early decades of the 20th century, the automakers of Detroit–and Henry Ford in particular–exerted a remarkable influence. This economic period had multiple periods of economic instability and world war–and that was even before the catastrophe of the Great Depression. In particular, authoritarian rulers of the 1930s were drawn to a model that seemed to combine large-scale facilities under central control with being at the cutting edge of modern industry. Stefan Link tells the story in his recent book. Forging global Fordism : Nazi Germany, Soviet Russia, and the contest over the industrial order (Princeton University Press, 2021).
When it came to developing fresh principles after the bankruptcy of the old economic order in the global crisis of the 1930s, it was Detroit that drew all modernizers of postliberal persuasion, left and right, Soviets and Nazis, fascists and socialists. To be sure, uncounted engineers and admirers had come to see Ford’s factories since the 1910s, when the old Highland Park, forge of the Model T, was first equipped with an assembly line. Yet in the 1930s Ford’s new factory—the much expanded, vertically integrated River Rouge—became the destination of engineering delegations bent on wholesale technology transfer. Italian, German, Russian, and Japanese specialists traveled to Detroit, spent weeks, months, even years at River Rouge to learn the American secret of mass production. With the Gorky Automobile Factory (Gaz) in central Russia, the Soviet Union opened its own “River Rouge” in 1932. In 1938, Hitler laid the cornerstone of the Volkswagen works. Nor were Nazis and Soviets alone. Toyota began operating its Koromo plant in 1938, and Fiat welcomed Mussolini for the opening ceremony of the brand-new Mirafiori facility in 1939. As is easily seen, these Depression-era exchanges laid the groundwork for the infrastructure of global Fordism after World War II. …
Evidently, both the Nazi and the Soviet self-diagnosis of underdevelopment vis-à-vis the United States was soaked in existential ideological sweat. This diagnosis, however, prescribed a simple and precise course of action: beat America with American methods. Lest Germany become “America’s prey,” it was necessary “to study the means and mechanisms of the Americans,” said Theodor Lüddecke, one of Fordism’s most vocal advocates on the Weimar right. Similarly, Arsenii Mikhailov, one of Fordism’s ardent Soviet champions, argued that the goals of the Five-Year Plan required “a swift and complete
switch to the most advanced American technology.
The making of Gaz, the Gorky “Auto Giant,” resulted from this course of action. Gaz marked an extraordinary attempt to transfer American technology wholesale and to indigenize it in a social and economic environment that seemed hardly ready for it. Soviet workers and engineers indeed struggled mightily to adopt what they took from Detroit. But despite enormous sacrifices and waste, somehow, by decade’s end, a capable motor mass production industry had materialized in central Russia. … Germany could dip into deep homegrown technological capabilities that the Soviet Union lacked and therefore struggled somewhat less to assimilate Fordism. The result was a double reception. The Volkswagen plant echoed the Soviet strategy of comprehensive copying. But the Nazi regime also tried (and largely succeeded) to harness the industrial acumen of Ford and General
Motors, both of which had branches in Germany, to its own ends. Ensnaring the Americans in a web of threats and incentives, the regime achieved pervasive, dollar-subsidized transfers of mass production technology into Germany.
There were attempts by Stalinist Russia and Nazi Germany to cut deals with a number of other leading American firms as well. Japan and Italy sought to import Fordism as well.
In Japan, no automobile industry existed after World War I, and during the Twenties both Ford and General Motors built assembly plants that fully covered the needs of the domestic market. By the mid-Thirties, however, the militarist government began to support fledgling attempts by Japanese industrialists to nurture a homegrown auto production. In 1936, the government passed the notorious Automobile Manufacturing Enterprise Law, a measure that discriminated against the American firms, penalized imports of vehicles, and encouraged Nissan and Toyota—weak and inexpert producers compared to the Americans—to expand investments and update their technologies. These measures eventually forced GM and Ford to exit the Japanese market and allowed Nissan and Toyota to acquire the Americans’ factory machinery and hire their workers and engineers.
In Italy, too, the regime tolerated the presence of American carmakers only for a brief period after World War I. In 1929, Mussolini personally thwarted an attempt by Ford to expand its presence in Italy, declaring that American competition would devastate the domestic automobile industry. Instead, Mussolini decisively backed the Turin-based carmaker Fiat, which benefited not only from the regime’s stifling labor policies but also from its military orders, export promotion schemes, and generous foreign exchange allocations for technology from the United States. Ford and GM eventually left the Italian market, while Fiat built its own brand-new, Rouge-style megaplant. Opened in 1939, Mirafiori was very similar to the Nazi Volkswagen project: a Fascist white elephant, valuable for propaganda purposes but also a monument to how assiduously the regime sought to alter its place in the global industrial pecking order
Link tells the story at book-length, and I certainly won’t attempt to recapitulate it here. But I do want to point out some of the ironies involved.
- Many people think of giant multinational manufacturing firms as the epitome of capitalism. But for authoritarian, socialist, and communist rulers, it seemed obvious that giant manufacturing firms could operate perfectly well as instruments of state power and control. Indeed, it has often been market-oriented economists who were more skeptical of whether extraordinarily giant firms were really needed for economic efficiency, or whether efficiency and innovation might be better-served with a group of middle-sized firms competitn with each other.
- For the Soviet Union in particular, the obsession with giant manufacturing firms led to central planning for giant firms all over the country. Indeed, Soviet central planners often seemed to equate sheer size of a factory with technological advancement. The size of the Soviet planned factories often outstripped the capacities of the central planners, leading to grotesque inefficiencies.
- When teaching intro econ students about economies of scale–that is, the common situation when larger production volumes can drive down average costs–a common question is whether there can be diseconomies of scale. Can there be cases when size gets so large that it average costs rise? In a reasonably competitive market, this won’t be possible, because the very large high-cost firm will go out of business. But if the ultra-large firm is sustained by the government, then yes, diseconomies of scale become possible.
- Each year, about 5% of global car production happens in the US economy. More broadly, manufacturing jobs have been a declining share of total US jobs for decades–all the job growth has been in service- and information-related industries, instead. not been the the center of the global car industry for a long time. Looking ahead, we seem to be living in a world where a combination of automation, robotics, and information technology may greatly limit the growth of manufacturing jobs anywhere in the world. Whatever the allure and tradeoffs of Fordism in the 20th century as a tool for economic development and government power, the plausible economic models for the 21st century look rather different.